A recession, not more land, would be the quickest way to ease
Australia's housing affordability crisis.

With apologies to former prime minister Paul Keating, it is a
recession Australia's battlers may need if they are to get back in
the race for the increasingly elusive Australian dream.

Economists from both the ANZ and Macquarie Bank this week
rejected claims by Prime Minister John Howard and international
researchers Demographia that state attempts to slow urban sprawl in
capital cities were to blame for record low housing
affordability.

They say a decade of low interest rates is the main reason
affordability is as bad now in Melbourne as it was in the early
1990s when rates hit 17 per cent. Other factors fuelling demand
were cuts to capital gains tax in 1999 and strong levels of
immigration over the past decade.

Research by Macquarie Bank interest rate strategist Rory
Robertson, a former Reserve Bank staff member, has found that poor
housing affordability was largely the result of heightened demand,
not a lack of land.

"If you didn't own a house when interest rates halved, you
missed the boat," he said.

He looked at a recent study by US consultants Demographia, which
blamed poor affordability internationally on restrictive planning
regimes that limited land release. That study found Australia now
had the least affordable housing in six developed countries
surveyed.

But Mr Robertson said that unlike the popular Australian
capitals that hug the coast and are few in number, the more
affordable cities  in the US in particular  were often
"rustbelt" unpopular places, inland, where population was
falling.

"That so many of Demographia's affordable markets clearly are
low-demand locations makes a mockery of the simplistic supply-side
story promoted by Demographia and the IPA (Institute of Public
Affairs)," he said.

His findings contradict the repeated claim of Prime Minister
John Howard and Treasurer Peter Costello that price inflation was
fuelled by slow land release policies of state governments.

"It is about time that the inner-urban elites that dominate the
policies of state Labor governments were put aside in the
interests of young home buyers who want to have a home of their own
on the outer periphery of our great cities," Mr Howard said last
year.

Most states now have planning strategies emphasising urban
consolidation and slowing urban sprawl, the local version being
Melbourne 2030.

The property industry and right-wing think tanks such as the IPA
have also blamed the states, with the Property Council this month
warning that policies such as 2030 are failing because they
underestimate the attachment to the quarter-acre block.

Yet in Victoria, the State Government has guaranteed developers
a 25-year land supply for housing.

Research by University of Sydney academic Nicole Gurran has also
raised doubts about Mr Howard's view. She found that new housing on
greenfield sites was a small proportion of the market and the
bigger influence was the high prices being paid in established
suburbs.

She said even if governments released great swathes of land,
developers would hold it until they got the price they wanted.

Surprisingly, even some developers seem to agree that supply is
not a major issue.

David Devine, of Queensland-based Devine Limited, told The
Age that Melbourne had a good supply of land. "We are bullish
about Melbourne," he said. "They have a very good planning
process."

Denis Hickey, the head of the development division at Stockland,
said planning issues were a concern in Victoria but were a far
bigger problem in places such as Sydney. "It is an issue in
Victoria, although Victoria has quite a good balance between
available, developable land and demand."

He said that, "perversely", a sharp rise in interest rates or
unemployment would improve affordability. But lowering the heat on
the economy to anything like recession levels is unlikely in an
election year.

"The overall majority of Australians like the things that have
made housing less affordable, like low interest rates," he said

In 16 years the size of average new mortgages has more than
tripled to $225,000 in Victoria, according to the Bureau of
Statistics. Median prices recently hit a record of just under
$400,000.

The Housing Industry Association has warned that Australia faces
an affordability crisis that is "undermining society's
foundations".

The association and the Commonwealth Bank estimated last month
that, for the first time in 25 years, the average household could
not afford to buy the average home.